FDIC Law, Regulations, Related Acts

7500 - FRB Regulations

(a) Definition. A financial holding company is a bank
holding company that meets the requirements of this section.

(b) Requirements to be a financial holding company. In
order to be a financial holding company:

(1) All depository institutions controlled by the bank holding
company must be and remain well capitalized;

(2) All depository institutions controlled by the bank holding
company must be and remain well managed; and

(3) The bank holding company must have made an effective election
to become a financial holding company.

(c) Requirements for foreign banks that are or are owned by
bank holding companies--(1) Foreign banks with U.S.
branches or agencies that also own U.S. banks. A foreign bank
that is a bank holding company and that operates a branch or agency or
owns or controls a commercial lending company in the United States must
comply with the requirements of this section, § 225.82, and
§§ 225.90 through
225.92 in order to be a financial holding company. After it becomes a
financial holding company, a foreign bank described in this paragraph
will be subject to the provisions of §§ 225.83, 225.84,
225.93, and
225.94.

(2) Bank holding companies that own foreign banks with U.S.
branches or agencies. A bank holding company that owns a foreign
bank that operates a branch or agency or owns or controls a commercial
lending company in the United States must comply with the requirements
of this section, § 225.82, and §§ 225.90 through 225.92 in order
to be a financial holding company. After it becomes a financial holding
company, a bank holding company described in this paragraph will be
subject to the provisions of §§ 225.83, 225.84, 225.93, and 225.94.

§ 225.82 How does a bank holding company elect to become a
financial holding company?

(a) Filing requirement. A bank holding company may elect
to become a financial holding company by filing a written declaration
with the appropriate Reserve Bank. A declaration by a bank holding
company is considered to be filed on the date that all information
required by paragraph (b) of this section is received by the
appropriate Reserve Bank.

(b) Contents of declaration. To be deemed complete, a
declaration must:

(1) State that the bank holding company elects to be a financial
holding company;

(2) Provide the name and head office address of the bank holding
company and of each depository institution controlled by the bank
holding company;

(3) Certify that each depository institution controlled by the
bank holding company is well capitalized as of the date the bank
holding company submits its declaration;

(4) Provide the capital ratios as of the close of the previous
quarter for all relevant capital measures, as defined in section 38 of
the Federal Deposit Insurance Act (12
U.S.C. 1831o), for each depository institution controlled by
the company on the date the company submits its declaration; and

(5) Certify that each depository institution controlled by the
company is well managed as of the date the company submits its
declaration.

(c) Effectiveness of election. An election by a bank
holding company to become a financial holding company shall not be
effective if, during the period provided in paragraph (e) of this
section, the Board finds that, as of the date the declaration was filed
with the appropriate Reserve Bank:

(1) Any insured depository institution controlled by the bank
holding company (except an institution excluded under paragraph (d) of
this section) has not achieved at least a rating of "satisfactory
record of meeting community credit needs" under the Community
Reinvestment Act at the institution's most recent examination; or

(2) Any depository institution controlled by the bank holding
company is not both well capitalized and well managed.

(d) Consideration of the CRA performance of a recently
acquired insured depository institution. Except as provided in
paragraph (f) of this section, an insured depository institution will
be excluded for purposes of the review of the Community Reinvestment
Act rating provisions of paragraph (c)(1) of this section if:

(1) The bank holding company acquired the insured depository
institution during the 12-month period preceding the filing of an
election under paragraph (a) of this section;

(2) The bank holding company has submitted an affirmative plan to
the appropriate Federal banking agency for the institution to take
actions necessary for the institution to achieve at least a rating of
"satisfactory record of meeting community credit needs" under the
Community Reinvestment Act at the next examination of the institution;
and

(3) The appropriate Federal banking agency for the institution
has accepted the plan described in paragraph (d)(2) of this section.

(e) Effective date of election--(1) In
general. An election filed by a bank holding company under
paragraph (a) of this section is effective on the 31st calendar day
after the date that a complete declaration was filed with the
appropriate Reserve Bank, unless the Board notifies the bank holding
company prior to that time that the election is ineffective.

(2) Earlier notification that an election is
effective. The Board or the appropriate Reserve Bank may notify a
bank holding company that its election to become a financial holding
company is effective prior to the 31st day after the date that a
complete declaration was filed with the appropriate Reserve Bank. Such
a notification must be in writing.

(f) Requests to become a financial holding company submitted
as part of an application to become a bank holding
company--(1) In general. A company that is not a bank
holding company and has applied for the Board's approval to become a
bank holding company under section 3(a)(1) of the BHC Act
(12 U.S.C. 1842(a)(1)) may as
part of that application submit a request to become a financial holding
company.

(2) Contents of request. A request to become a
financial holding company submitted as part of an application to become
a bank holding company must:

(i) State that the company seeks to become a financial holding
company on consummation of its proposal to become a bank holding
company; and

(ii) Certify that each depository institution that would be
controlled by the company on consummation of its proposal to become a
bank holding company will be both well capitalized and well managed as
of the date the company consummates the proposal.

(3) Request becomes a declaration and an effective election
on date of consummation of bank holding company proposal. A
complete request submitted by a company under this paragraph (f)
becomes a complete declaration by a bank holding company for purposes
of section 4(l) of the BHC Act (12
U.S.C. 1843(l)) and becomes an effective election for purposes
of § 225.81(b) on the date that the company lawfully consummates its
proposal under section 3 of the BHC Act
(12 U.S.C. 1842), unless the
Board notifies the company at any time prior to consummation of the
proposal and that:

(i) Any depository institution that would be controlled by the
company on consummation of the proposal will not be both well
capitalized and well managed on the date of consummation; or

(ii) Any insured depository institution that would be controlled
by the company on consummation of the proposal has not achieved at
least a rating of "satisfactory record of meeting community credit
needs" under the Community Reinvestment Act at the institution's
most recent examination.

(4) Limited exclusion for recently acquired institutions
not available. Unless the Board determines otherwise, an insured
depository institution that is controlled or would be controlled by the
company as part of its proposal to become a bank holding company may
not be excluded for purposes of evaluating the Community Reinvestment
Act criterion described in this paragraph or in paragraph (d) of this
section.

(g) Board's authority to exercise supervisory authority over
a financial holding company. An effective election to become a
financial holding company does not in any way limit the Board's
statutory authority under the BHC Act, the Federal Deposit Insurance
Act, or any other relevant Federal statute to take appropriate action,
including imposing supervisory limitations, restrictions, or
prohibitions on the activities and acquisitions of a bank holding
company that has elected to become a financial holding company, or
enforcing compliance with applicable law.

§ 225.83 What are the consequences of failing to continue to
meet applicable capital and management requirements?

(a) Notice by the Board. If the Board finds that a
financial holding company controls any depository institution that is
not well capitalized or well managed, the Board will notify the company
in writing that it is not in compliance with the applicable
requirement(s) for a financial holding company and identify the area(s)
of noncompliance. The Board may provide this notice at any time before
or after receiving notice from the financial holding company under
paragraph (b) of this section.

(b) Notification by a financial holding company
required--(1) Notice to Board. A financial holding
company must notify the Board in writing within 15 calendar days of
becoming aware that any depository institution controlled by the
company has ceased to be well capitalized or well managed. This
notification must identify the depository institution involved and the
area(s) of noncompliance.

(2) Triggering events for notice to the
Board--(i) Well capitalized. A company becomes aware
that a depository institution it controls is no longer well capitalized
upon the occurrence of any material event that would change the
category assigned to the institution for purposes of section 38 of the
Federal Deposit Insurance Act (12
U.S.C. 1831o). See 12 CFR 6.3(b)--(c),
208.42(b)--(c), and
325.102(b)--(c).

(ii) Well managed. A company becomes aware that a
depository institution it controls is no longer well managed at the
time the depository institution receives written notice from the
appropriate Federal or state banking agency that either its composite
rating or its rating for management is not at least satisfactory.

(c) Execution of agreement acceptable to the
Board--(1) Agreement required; time period. Within 45
days after receiving a notice from the Board under paragraph (a) of
this section, the company must execute an agreement acceptable to the
Board to comply with all applicable capital and management
requirements.

(2) Extension of time for executing agreement. Upon
request by a company, the Board may extend the 45-day period under
paragraph (c)(1) of this section if the Board determines that granting
additional time is appropriate under the circumstances. A request by a
company for additional time must include an explanation of why an
extension is necessary.

(3) Agreement requirements. An agreement required by
paragraph (c)(1) of this section to correct a capital or management
deficiency must:

(i) Explain the specific actions that the company will take to
correct all areas of noncompliance;

(ii) Provide a schedule within which each action will be taken;

(iii) Provide any other information that the Board may require;
and

(iv) Be acceptable to the Board.

(d) Limitations during period of noncompliance--Until
the Board determines that a company has corrected the conditions
described in a notice under paragraph (a) of this section:

(1) The Board may impose any limitations or conditions on the
conduct or activities of the company or any of its affiliates as the
Board finds to be appropriate and consistent with the purposes of the
BHC Act; and

(2) The company and its affiliates may not commence any
additional activity or acquire control of shares of any company under
section 4(k) of the BHC Act without prior approval from the Board.

(e) Consequences of failure to correct conditions within 180
days--(1) Divestiture of depository institutions. If
a company does not correct the conditions described in a notice under
paragraph (a) of this section within 180 days of receipt of the notice
or such additional time as the Board may permit, the Board may order
the company to divest ownership or control of any depository
institution owned or controlled by the company. Such divestiture must
be done in accordance with the terms and conditions established by the
Board.

(2) Alternative method of complying with a divestiture
order. A company may comply with an order issued under paragraph
(e)(1) of this section by ceasing to engage (both directly and through
any subsidiary that is not a depository institution or a subsidiary of
a depository institution) in any activity that may be conducted only
under section 4(k), (n), or (o) of the BHC Act
(12 U.S.C. 1843(k),
(n), or
(o)). The termination of
activities must be completed within the time period referred to in
paragraph (e)(1) of this section and in accordance with the terms and
conditions acceptable to the Board.

(f) Consultation with other agencies. In taking any
action under this section, the Board will consult with the relevant
Federal and state regulatory authorities.

§ 225.84 What are the consequences of failing to maintain a
satisfactory or better rating under the Community Reinvestment Act at
all insured depository institution subsidiaries?

(a) Limitations on activities--(1) In
general. Upon receiving a notice regarding performance under the
Community Reinvestment Act in accordance with paragraph (a)(2) of this
section, a financial holding company may not:

(i) Commence any additional activity under section 4(k) or 4(n)
of the BHC Act (12 U.S.C.
1843(k) or (n)); or

(ii) Directly or indirectly acquire control, including all or
substantially all of the assets, of a company engaged in any activity
under section 4(k) or 4(n) of the BHC Act (12 U.S.C. 1843(k) or (n)).

(2) Notification. A financial holding company
receives notice for purposes of this paragraph at the time that the
appropriate Federal banking agency for any insured depository
institution controlled by the company or the Board provides notice to
the institution or company that the institution has received a rating
of "needs to improve record of meeting community credit needs" or
"substantial noncompliance in meeting community credit needs" in
the institution's most recent examination under the Community
Reinvestment Act.

(b) Exceptions for certain
activities--(1) Continuation of investment
activities. The prohibition in paragraph (a) of this section does
not prevent a financial holding company from continuing to make
investments in the ordinary course of conducting merchant banking
activities under section 4(k)(4)(H) of the BHC Act
(12 U.S.C. 1843(k)(4)(H)) or
insurance company investment activities under section 4(k)(4)(I) of the
BHC Act (12 U.S.C. 1843(k)(4)(I)) if:

(i) The financial holding company lawfully was a financial
holding company and commenced the merchant banking activity under
section 4(k)(4)(H) of the BHC Act (12 U.S.C. 1843(k)(4)(H)) or the
insurance company investment activity under section 4(k)(4)(I) of the
BHC Act (12 U.S.C. 1843(k)(4)(I)) prior to the time that an insured
depository institution controlled by the financial holding company
received a rating below "satisfactory record of meeting community
credit needs" under the Community Reinvestment Act; and

(ii) The Board has not, in the exercise of its supervisory
authority, advised the financial holding company that these activities
must be restricted.

(2) Activities that are closely related to
banking. The prohibition in paragraph (a) of this section does
not prevent a financial holding company from commencing any additional
activity or acquiring control of a company engaged in any activity
under section 4(c) of the BHC Act (12
U.S.C. 1843(c)), if the company complies with the notice,
approval, and other requirements of that section and section 4(j) of
the BHC Act (12 U.S.C.
1843(j)).

(c) Duration of prohibitions. The prohibitions
described in paragraph (a) of this section shall continue in effect
until such time as each insured depository institution controlled by
the financial holding company has achieved at least a rating of
"satisfactory record of
meeting community credit needs" under the
Community Reinvestment Act at the most recent examination of the
institution.

§ 225.85 Is notice to or approval from the Board required prior
to engaging in a financial activity?

(a) No prior approval required generally--(1) In
general. A financial holding company and any subsidiary (other
than a depository institution or subsidiary of a depository
institution) of the financial holding company may engage in any
activity listed in § 225.86, or acquire shares or control of a
company engaged exclusively in activities listed in § 225.86, without
providing prior notice to or obtaining prior approval from the Board
unless required under paragraph (c) of this section.

(2) Acquisitions by a financial holding company of a
company engaged in other permissible activities. In addition to
the activities listed in § 225.86, a company acquired or to be
acquired by a financial holding company under paragraph (a)(1) of this
section may engage in activities otherwise permissible for a financial
holding company under this part in accordance with any applicable
notice, approval, or other requirement.

(3) Acquisition by a financial holding company of a company
engaged in limited nonfinancial activities--(i) Mixed
acquisitions generally permitted. A financial holding company may
under this subpart acquire more than 5 percent of the outstanding
shares of any class of voting securities or control of a company that
is not engaged exclusively in activities that are financial in nature,
incidental to a financial activity, or otherwise permissible for the
financial holding company under section 4(c) of the BHC Act
(12 U.S.C. 1843(c)) if:

(A) The company to be acquired is substantially engaged in
activities that are financial in nature, incidental to a financial
activity, or otherwise permissible for the financial holding company
under section 4(c) of the BHC Act (12 U.S.C. 1843(c));

(B) The financial holding company complies with the notice
requirements of § 225.87, if applicable; and

(C) The company conforms, terminates, or divests, within 2 years
of the date the financial holding company acquires shares or control of
the company, all activities that are not financial in nature,
incidental to a financial activity, or otherwise permissible for the
financial holding company under section 4(c) (12 U.S.C. 1843(c)) of the
BHC Act.

(ii) Definition of "substantially
engaged." Unless the Board determines otherwise, a company
will be considered to be "substantially engaged" in activities
permissible for a financial holding company for purposes of paragraph
(a)(3)(A) of this section if at least 85 percent of the company's
consolidated total annual gross revenues is derived from and at least
85 percent of the company's consolidated total assets is attributable
to the conduct of activities that are financial in nature, incidental
to a financial activity, or otherwise permissible for a financial
holding company under section 4(c) of the BHC Act (12 U.S.C. 1843(c)).

(b) Locations in which a financial holding company may
conduct financial activities. A financial holding company may
conduct any activity listed in § 225.86 at any location in the United
States or at any location outside of the United States subject to the
laws of the jurisdiction in which the activity is conducted.

(c) Circumstances under which prior notice to the Board is
required--(1) Acquisition of more than 5 percent of the
shares of a savings association. A financial holding company must
obtain Board approval in accordance with section 4(j) of the BHC Act
(12 U.S.C. 1843(j)) and either
§ 225.14 or
§ 225.24, as
appropriate, prior to acquiring control or more than 5 percent of the
outstanding shares of any class of voting securities of a savings
association or of a company that owns, operates, or controls a savings
association.

(2) Supervisory actions. The Board may, if
appropriate in the exercise of its supervisory or other authority,
including under
§ 225.82(g) or
§ 225.83(d) or other
relevant authority, require a financial holding company to provide
notice to or obtain approval from the Board prior to engaging in any
activity or acquiring shares or control of any company.

§ 225.86 What activities are permissible for any financial
holding company?

The following activities are financial in nature or incidental to a
financial activity:

(a) Activities determined to be closely related to
banking.(1) Any activity that the Board had determined by
regulation prior to November 12, 1999, to be so closely related to
banking as to be a proper incident thereto, subject to the terms and
conditions contained in this part, unless modified by the Board. These
activities are listed in
§ 225.28.

(2) Any activity that the Board had determined by an order that
was in effect on November 12, 1999, to be so closely related to banking
as to be a proper incident thereto, subject to the terms and conditions
contained in this part and those in the authorizing orders. These
activities are:

(iv) Providing employment histories to third parties for use in
making credit decisions and to depository institutions and their
affiliates for use in the ordinary course of business (Norwest
Corporation, 81 Federal Reserve Bulletin 732 (1995));

(b) Activities determined to be usual in connection with the
transaction of banking abroad.Any activity that the Board had
determined by regulation in effect on November 11, 1999, to be usual in
connection with the transaction of banking or other financial
operations abroad (see§ 211.5(d) of this chapter),
subject to the terms and conditions in part 211 and Board
interpretations in effect on that date regarding the scope and conduct
of the activity. In addition to the activities listed in paragraphs (a)
and (c) of this section, these activities are:

(1) Providing management consulting services, including to any
person with respect to nonfinancial matters, so long as the management
consulting services are advisory and do not allow the financial holding
company to control the person to which the services are provided;

(2) Operating a travel agency in connection with financial
services offered by the financial holding company or others; and

(3) Organizing, sponsoring, and managing a mutual fund, so long
as:

(i) The fund does not exercise managerial control over the
entities in which the fund invests; and

(ii) The financial holding company reduces its ownership in the
fund, if any, to less than 25 percent of the equity of the fund within
one year of sponsoring the fund or such additional period as the Board
permits.

(c) Activities permitted under section 4(k)(4) of the BHC Act
(12 U.S.C. 1843(k)(4)).
Any activity defined to be financial in nature under sections
4(k)(4)(A) through (E), (H) and (I) of the BHC Act (12 U.S.C.
1843(k)(4)(A) through (E), (H) and (I)).

(d) Activities determined to be financial in nature or
incidental to financial activities by the Board--(1) Acting
as a finder--Acting as a finder in bringing together one or more
buyers and sellers of any product or service for transactions that the
parties themselves negotiate and consummate.

(i) What is the scope of finder activities? Acting as
a finder includes providing any or all of the following services
through any means--

(A) Identifying potential parties, making inquiries as to
interest, introducing and referring potential parties to each other,
and arranging contacts between and meetings of interested parties;

(B) Conveying between interested parties expressions of interest,
bids, offers, orders and confirmations relating to a transaction; and

(C) Transmitting information concerning products and services to
potential parties in connection with the activities described in
paragraphs (d)(1)(i)(A) and (B) of this section.

(ii) What are some examples of finder services? The
following are examples of the services that may be provided by a finder
when done in accordance with paragraphs (d)(1)(iii) and (iv) of this
section. These examples are not exclusive.

(A) Hosting an electronic marketplace on the financial holding
company's Internet web site by providing hypertext or similar links to
the web sites of third party buyers or sellers.

(B) Hosting on the financial holding company's servers the
Internet web site of--

(1) A buyer (or seller) that provides information
concerning the buyer (or seller) and the products or services it seeks
to buy (or sell) and allows sellers (or buyers) to submit expressions
of interest, bids, offers, orders and confirmations relating to such
products or services; or

(2) A government or government agency that provides
information concerning the services or benefits made available by the
government or government agency, assists persons in completing
applications to receive such services or benefits from the government
or agency, and allows persons to transmit their applications for
services or benefits to the government or agency.

(C) Operating an Internet web site that allows multiple buyers
and sellers to exchange information concerning the products and
services that they are willing to purchase or sell, locate potential
counterparties for transactions, aggregate orders for goods or services
with those made by other parties, and enter into transactions between
themselves.

(iii) What limitations are applicable to a financial
holding company acting as a finder?

(A) A finder may act only as an intermediary between a buyer and
a seller.

(B) A finder may not bind any buyer or seller to the terms of a
specific transaction or negotiate the terms of a specific transaction
on behalf of a buyer or seller, except that a finder may--

(1) Arrange for buyers to receive preferred terms from
sellers so long as the terms are not negotiated as part of any
individual transaction, are provided generally to customers or broad
categories of customers, and are made available by the seller (and not
by the financial holding company); and

(2) Establish rules of general applicability governing
the use and operation of the finder service, including rules
that--

(i) Govern the submission of bids and offers by buyers
and sellers that use the finder service and the circumstances under
which the finder service will match bids and offers submitted by buyers
and sellers; and

(ii) Govern the manner in which buyers and sellers may
bind themselves to the terms of a specific transaction.

(C) A finder may not--

(1) Take title to or acquire or hold an ownership
interest in any product or service offered or sold through the finder
service;

(2) Provide distribution services for physical
products or services offered or sold through the finder service;

(3) Own or operate any real or personal property that
is used for the purpose of manufacturing, storing, transporting, or
assembling physical products offered or sold by third parties; or

(4) Own or operate any real or personal property that
serves as a physical location for the physical purchase, sale or
distribution of products or services offered or sold by third parties.

(D) A finder may not engage in any activity that would require
the company to register or obtain a license as a real estate agent or
broker under applicable law.

(iv) What disclosures are required? A finder must
distinguish the products and services offered by the financial holding
company from those offered by a third party through the finder service.

(1) The following types of activities are financial in nature or
incidental to a financial activity when conducted pursuant to a
determination by the Board under paragraph (e)(2) of this section:

(i) Lending, exchanging, transferring, investing for others, or
safeguarding financial assets other than money or securities;

(ii) Providing any device or other instrumentality for
transferring money or other financial assets; and

(iii) Arranging, effecting, or facilitating financial
transactions for the account of third parties.

(2) Review of specific activities.

(i) Is a specific request required? A financial
holding company that wishes to engage on the basis of paragraph (e)(1)
of this section in an activity that is not otherwise permissible for a
financial holding company must obtain a determination from the Board
that the activity is permitted under paragraph (e)(1).

(ii) Consultation with the Secretary of the
Treasury. After receiving a request under this section, the Board
will provide the Secretary of the Treasury with a copy of the request
and consult with the Secretary in accordance with section 4(k)(2)(A) of
the Bank Holding Company Act (12 U.S.C. 1843(k)(2)(A)).

(iii) Board action on requests. After consultation
with the Secretary, the Board will promptly make a written
determination regarding whether the specific activity described in the
request is included in an activity category listed in paragraph (e)(1)
of this section and is therefore either financial in nature or
incidental to a financial activity.

(3) What factors will the Board consider? In
evaluating a request made under this section, the Board will take into
account the factors listed in section 4(k)(3) of the BHC Act (12 U.S.C.
1843(k)(3)) that it must consider when determining whether an activity
is financial in nature or incidental to a financial activity.

(4) What information must the request contain? Any
request by a financial holding company under this section must be in
writing and must:

(i) Identify and define the activity for which the determination
is sought, specifically describing what the activity would involve and
how the activity would be conducted; and

(ii) Provide information supporting the requested determination,
including information regarding how the proposed activity falls into
one of the categories listed in paragraph (e)(1) of this section and
any other information required by the Board concerning the proposed
activity.

§ 225.87 Is notice to the Board required after engaging in a
financial activity?

(a) Post-transaction notice generally required to engage in a
financial activity. A financial holding company that commences an
activity or acquires shares of a company engaged in an activity listed
in § 225.86 must notify the appropriate Reserve Bank in writing
within 30 calendar days after commencing the activity or consummating
the acquisition by using the appropriate form.

(b) Cases in which notice to the Board is not
required--(1) Acquisitions that do not involve control of a
company. A notice under paragraph (a) of this section is not
required in connection with the acquisition of shares of a company if,
following the acquisition, the financial holding company does not
control the company.

(2) No additional notice required to engage de novo in
any activity for which a financial holding company already has provided
notice. After a financial holding company provides the appropriate
Reserve Bank with notice that the company is engaged in an activity
listed in § 225.86, a financial holding company may, unless otherwise
notified by the Board, commence the activity de novo through
any subsidiary that the financial holding company is authorized to
control without providing additional notice under paragraph (a) of this
section.

(3) Conduct of certain investment activities. Unless
required by paragraph (b)(4) of this section, a financial holding
company is not required to provide notice under paragraph (a) of this
section of any individual acquisition of shares of a company as part of
the conduct by a financial holding company of securities underwriting,
dealing, or market making activities as described in section 4(k)(4)(E)
of the BHC Act (12 U.S.C.
1843(k)(4)(E)), merchant banking activities conducted pursuant
to section 4(k)(4)(H) of the BHC Act (12 U.S.C. 1843(k)(4))(H)), or
insurance company investment activities conducted pursuant to section
4(k)(4)(I) of the BHC Act (12 U.S.C. 1843(k)(4)(I)), if the financial
holding company previously has notified the Board under paragraph (a)
of this section that the company has commenced the relevant securities,
merchant banking, or insurance company investment activities, as
relevant.

(4) Notice of large merchant banking or insurance company
investments. Notwithstanding paragraph (b)(1) or (b)(3) of
this section, a financial holding company must provide notice under
paragraph (a) of the section if:

(i) As part of a merchant banking activity conducted under
section 4(k)(4)(H) of the BHC Act (12 U.S.C. 1843(k)(4)(H)), the
financial holding company acquires more than 5 percent of the shares,
assets, or ownership interests of any company at a total cost that
exceeds the lesser of 5 percent of the financial holding company's
Tier 1 capital or $200 million;

(ii) As part of an insurance company investment activity
conducted under section 4(k)(4)(I) of the BHC Act (12 U.S.C.
1843(k)(4)(I)), the financial holding company acquires more than 5
percent of the shares, assets, or ownership interests of any company at
a total cost that exceeds the lesser of 5 percent of the financial
holding company's Tier 1 capital or $200 million; or

(iii) The Board in the exercise of its supervisory authority
notifies the financial holding company that a notice is
necessary.

§ 225.88 How to request the Board to determine that an activity
is financial in nature or incidental to a financial activity?

(a) Requests regarding activities that may be financial in
nature or incidental to a financial activity. A financial holding
company or other interested party may request a determination from the
Board that an activity not listed in § 225.86 is financial in nature
or incidental to a financial activity.

(b) Required information. A request submitted under
this section must be in writing and must:

(1) Identify and define the activity for which the determination
is sought, specifically describing what the activity would involve and
how the activity would be conducted;

(2) Explain in detail why the activity should be considered
financial in nature or incidental to a financial activity; and

(3) Provide information supporting the requested determination
and any other information required by the Board concerning the proposed
activity.

(c) Board procedures for reviewing
requests--(1) Consultation with the Secretary of the
Treasury. Upon receipt of the request, the Board will provide the
Secretary of the Treasury a copy of the request and consult with the
Secretary in accordance with section 4(k)(2)(A) of the BHC Act (12
U.S.C. 1843(k)(2)(A)).

(2) Public notice. The Board may, as appropriate and
after consultation with the Secretary, publish a description of the
proposal in the Federal Register with a request for public
comment.

(d) Board action. The Board will endeavor to make a
decision on any request filed under paragraph (a) of this section
within 60 calendar days following the completion of both the
consultative process described in paragraph (c)(1) of this section and
the public comment period, if any.

(e) Advisory opinions regarding scope of financial
activities--(1) Written request. A financial holding
company or other interested party may request an advisory opinion from
the Board about whether a specific proposed activity falls within the
scope of an activity listed in
§ 225.86 as financial in
nature or incidental to a financial activity. The request must be
submitted in writing and must contain:

(i) A detailed description of the particular activity in which
the company proposes to engage or the product or service the company
proposes to provide;

(ii) An explanation supporting an interpretation regarding the
scope of the permissible financial activity; and

(iii) Any additional information requested by the Board regarding
the activity.

(2) Board response. The Board will provide an
advisory opinion within 45 calendar days of receiving a complete
written request under paragraph (e)(1) of this section.

§ 225.89 How to request approval to engage in an activity that
is complementary to a financial activity?

(a) Prior Board approval is required. A financial
holding company that seeks to engage in or acquire more than 5 percent
of the outstanding shares of any class of voting securities of a
company engaged in an activity that the financial holding company
believes is complementary to a financial activity must obtain prior
approval from the Board in accordance with section 4(j) of the BHC Act
(12 U.S.C. 1843(j)). The notice
must be in writing and must:

(1) Identify and define the proposed complementary activity,
specifically describing what the activity would involve and how the
activity would be conducted;

(2) Identify the financial activity for which the proposed
activity would be complementary and provide detailed information
sufficient to support a finding that the proposed activity should be
considered complementary to the identified financial activity;

(3) Describe the scope and relative size of the proposed
activity, as measured by the percentage of the projected financial
holding company revenues expected to be derived from and assets
associated with conducting the activity;

(4) Discuss the risks that conducting the activity may reasonably
be expected to pose to the safety and soundness of the subsidiary
depository institutions of the financial holding company and to the
financial system generally;

(5) Describe the potential adverse effects, including potential
conflicts of interest, decreased or unfair competition, or other risks,
that conducting the activity could raise, and explain the measures the
financial holding company proposes to take to address those potential
effects;

(6) Describe the potential benefits to the public, such as
greater convenience, increased competition, or gains in efficiency,
that the proposal reasonably can be expected to produce; and

(7) Provide any information about the financial and managerial
resources of the financial holding company and any other information
requested by the Board.

(b) Factors for consideration by the Board. In
evaluating a notice to engage in a complementary activity, the Board
must consider whether:

(1) The proposed activity is complementary to a financial
activity;

(2) The proposed activity would pose a substantial risk to the
safety or soundness of depository institutions or the financial system
generally; and

(3) The proposal could be expected to produce benefits to the
public that outweigh possible adverse effects.

(c) Board action. The Board will inform the financial
holding company in writing of the Board's determination regarding the
proposed activity within the period described in section 4(j) of the
BHC Act (12 U.S.C. 1843(j)).

§ 225.90 What are the requirements for a foreign bank to be
treated as a financial holding company?

(a) Foreign banks as financial holding companies. A
foreign bank that operates a branch or agency or owns or controls a
commercial lending company in the United States, and any company that
owns or controls such a foreign bank, will be treated as a financial
holding company if:

(1) The foreign bank, any other foreign bank that maintains a
U.S. branch, agency, or commercial lending company and is controlled by
the foreign bank or company, and any U.S. depository institution
subsidiary that is owned or controlled by the foreign bank or company,
is and remains well capitalized and well managed; and

(2) The foreign bank, and any company that owns or controls the
foreign bank, has made an effective election to be treated as a
financial holding company under this subpart.

(b) Standards for "well capitalized." A foreign
bank will be considered "well capitalized" if either:

(1)(i) Its home country supervisor, as defined in § 211.21 of
the Board's Regulation K (12 CFR
211.21), has adopted risk-based capital standards consistent
with the Capital Accord of the Basel Committee on Banking Supervision
(Basel Accord);

(ii) The foreign bank maintains a Tier 1 capital to total
risk-based assets ratio of 6 percent and a total capital to total
risk-based assets ratio of 10 percent, as calculated under its home
country standard; and

(iii) The foreign bank's capital is comparable to the capital
required for a U.S. bank owned by a financial holding company; or

(2) The foreign bank has obtained a determination from the Board
under § 225.91(c) that the foreign bank's capital is otherwise
comparable to the capital that would be required of a U.S. bank owned
by a financial holding company.

(c) Standards for "well managed." A foreign bank
will be considered "well managed" if:

(1) The foreign bank has received at least a satisfactory
composite rating of its U.S. branch, agency, and commercial lending
company operations at its most recent assessment;

(2) The home country supervisor of the foreign bank consents to
the foreign bank expanding its activities in the United States to
include activities permissible for a financial holding company; and

(3) The management of the foreign bank meets standards comparable
to those required of a U.S. bank owned by a financial holding company.

§ 225.91 How may a foreign bank elect to be treated as a
financial holding company?

(a) Filing requirement. A foreign bank that operates a
branch or agency or owns or controls a commercial lending company in
the United States, or a company that owns or controls such a foreign
bank, may elect to be treated as a financial holding company by filing
a written declaration with the appropriate Reserve Bank.

(b) Contents of declaration. The declaration must:

(1) State that the foreign bank or the company elects to be
treated as a financial holding company;

(2) Provide the risk-based capital ratios and amount of Tier 1
capital and total assets of the foreign bank, and of each foreign bank
that maintains a U.S. branch, agency, or commercial lending company and
is controlled by the foreign bank or company, as of the close of the
most recent quarter and as of the close of the most recent audited
reporting period;

(3) Certify that the foreign bank, and each foreign bank that
maintains a U.S. branch, agency, or commercial lending company and is
controlled by the foreign bank or company, meets the standards of well
capitalized set out in § 225.90(b)(1)(i) and (ii) or § 225.90(b)(2)
as of the date the foreign bank or company files its election;

(4) Certify that the foreign bank, and each foreign bank that
maintains a U.S. branch, agency, or commercial lending company and is
controlled by the foreign bank or company, is well managed as defined
in § 225.90(c)(1) as of the date the foreign bank or company files
its election;

(5) Certify that all U.S. depository institution subsidiaries of
the foreign bank or company are well capitalized and well managed as of
the date the foreign bank or company files its election; and

(6) Provide the capital ratios for all relevant capital measures
(as defined in section 38 of the Federal Deposit Insurance Act
(12 U.S.C. 1831(o))) as of
the close of the previous quarter for each U.S. depository institution
subsidiary of the foreign bank or company.

(c) Pre-clearance process. Before filing an election to
be treated as a financial holding company, a foreign bank or company
may file a request for review of its qualifications to be treated as a
financial holding company. The Board will endeavor to make a
determination on such requests within 30 days of receipt. A foreign
bank that has not been found, or that is chartered in a country where
no bank from that country has been found, by the Board under the Bank
Holding Company Act or the International Banking Act to be subject to
comprehensive supervision or regulation on a consolidated basis by its
home country supervisor is required to use this process.

(a) In general. An election described in § 225.91 is
effective on the 31st day after the date that an election was received
by the appropriate Federal Reserve Bank, unless the Board notifies the
foreign bank or company prior to that time that:

(1) The election is ineffective; or

(2) The period is extended with the consent of the foreign bank
or company making the election.

(b) Earlier notification that an election is
effective. The Board or the appropriate Federal Reserve Bank may
notify a foreign bank or company that its election to be treated as a
financial holding company is effective prior to the 31st day after the
election was filed with the appropriate Federal Reserve Bank. Such
notification must be in writing.

(c) Under what circumstances will the Board find an election
to be ineffective? An election to be treated as financial holding
company shall not be effective if, during the period provided in
paragraph (a) of this section, the Board finds that:

(1) The foreign bank certificant, or any foreign bank that
operates a branch or agency or owns or controls a commercial lending
company in the United States and is controlled by a foreign company
certificant, is not both well capitalized and well managed;

(2) Any U.S. insured depository institution subsidiary of the
foreign bank or company (except an institution excluded under paragraph
(d) of this section) or any U.S. branch of a foreign bank that is
insured by the Federal Deposit Insurance Corporation has not achieved
at least a rating of "satisfactory record of meeting community
needs" under the Community Reinvestment Act at the institution's
most recent examination;

(3) Any U.S. depository institution subsidiary of the foreign
bank or company is not both well capitalized and well managed; or

(4) The Board does not have sufficient information to assess
whether the foreign bank or company making the election meets the
requirements of this subpart.

(d) How is CRA performance of recently acquired insured
depository institutions considered? An insured depository
institution will be excluded for purposes of the review of CRA ratings
described in paragraph (c)(2) of this section consistent with the
provisions of
§ 225.82(d).

(e) Factors used in the Board's determination regarding
comparability of capital and management.--(1) In
general. In determining whether a foreign bank is well
capitalized and well managed in accordance with comparable capital and
management standards, the Board will give due regard to national
treatment and equality of competitive opportunity. In this regard, the
Board may take into account the foreign bank's composition of capital,
Tier 1 capital to total assets leverage ratio, accounting standards,
long-term debt ratings, reliance on government support to meet capital
requirements, the foreign bank's anti-money laundering procedures,
whether the foreign bank is subject to comprehensive supervision or
regulation on a consolidated basis, and other factors that may affect
analysis of capital and management. The Board will consult with the
home country supervisor for the foreign bank as appropriate.

(2) Assessment of consolidated supervision. A foreign
bank that is not subject to comprehensive supervision on a consolidated
basis by its home country authorities may not be considered well
capitalized and well managed unless:

(i) The home country has made significant progress in
establishing arrangements for comprehensive supervision on a
consolidated basis; and

(ii) The foreign bank is in strong financial condition as
demonstrated, for example, by capital levels that significantly exceed
the minimum levels that are required for a well capitalized
determination and strong asset quality.

§ 225.93 What are the consequences of a foreign bank failing to
continue to meet applicable capital and management requirements?

(a) Notice by the Board. If a foreign bank or company
has made an effective election to be treated as a financial holding
company under this subpart and the Board finds that the foreign bank,
any foreign bank that maintains a U.S. branch, agency, or commercial
lending company and is controlled by the foreign bank or company, or
any U.S. depository institution subsidiary controlled by the foreign
bank or company, ceases to be well capitalized or well managed, the
Board will notify the foreign bank and company, if any, in writing that
it is not in compliance with the applicable requirement(s) for a
financial holding company and identify the areas of noncompliance.

(b) Notification by a financial holding company
required.--(1) Notice to Board. Promptly upon
becoming aware that the foreign bank, any foreign bank that maintains a
U.S. branch, agency, or commercial lending company and is controlled by
the foreign bank or company, or any U.S. depository institution
subsidiary of the foreign bank or company, has ceased to be well
capitalized or well managed, the foreign bank and company, if any, must
notify the Board and identify the area of noncompliance.

(2) Triggering events for notice to the
Board--(i) Well capitalized. A foreign bank becomes
aware that it is no longer well capitalized at the time that the
foreign bank or company is required to file a report of condition (or
similar supervisory report) with its home country supervisor or the
appropriate Federal Reserve Bank that indicates that the foreign bank
no longer meets the well capitalized standards.

(ii) Well managed. A foreign bank becomes aware that
it is no longer well managed at the time that the foreign bank receives
written notice from the appropriate Federal Reserve Bank that the
composite rating of its U.S. branch, agency, and commercial lending
company operations is not at least satisfactory.

(c) Execution of agreement acceptable to the
Board--(1) Agreement required; time period. Within 45
days after receiving a notice under paragraph (a) of this section, the
foreign bank or company must execute an agreement acceptable to the
Board to comply with all applicable capital and management
requirements.

(2) Extension of time for executing agreement. Upon
request by the foreign bank or company, the Board may extend the 45-day
period under paragraph (c)(1) of this section if the Board determines
that granting additional time is appropriate under the circumstances. A
request by a foreign bank or company for additional time must include
an explanation of why an extension is necessary.

(3) Agreement requirements. An agreement required by
paragraph (c)(1) of this section to correct a capital or management
deficiency must:

(i) Explain the specific actions that the foreign bank or company
will take to correct all areas of noncompliance;

(ii) Provide a schedule within which each action will be taken;

(iii) Provide any other information that the Board may require;
and

(iv) Be acceptable to the Board.

(d) Limitations during period of noncompliance--Until
the Board determines that a foreign bank or company has corrected the
conditions described in a notice under paragraph (a) of this section:

(1) The Board may impose any limitations or conditions on the
conduct or the U.S. activities of the foreign bank or company or any of
its affiliates as the board finds to be appropriate and consistent with
the purposes of the Bank Holding Company Act; and

(2) The foreign bank or company and its affiliates may not
commence any additional activity in the United States or acquire
control or shares of any company under section 4(k) of the Bank Holding
Company Act (12 U.S.C. 1843(k))
without prior approval from the Board.

(e) Consequences of failure to correct conditions within 180
days--(1) Termination of Offices and Divestiture. If
a foreign bank or company does not correct the conditions described in
a notice under paragraph (a) of this section within 180 days of receipt
of the notice or such additional time as the Board may permit, the
Board may order the foreign bank or company to terminate the foreign
bank's U.S. branches and agencies and divest any commercial lending
companies owned or controlled by the foreign bank or company. Such
divestiture must be done in accordance with the terms and conditions
established by the Board.

(2) Alternative method of complying with a divestiture
order. A foreign bank or company may comply with an order issued
under paragraph (e)(1) of this section by ceasing to engage (both
directly and through any subsidiary that is not a depository
institution or a subsidiary of a depository institution) in any
activity that may be conducted only under section 4(k), (n), or (o) of
the BHC Act (12 U.S.C. 1843(k),
(n) and
(o)). The termination of
activities must be completed within the time period referred to in
paragraph (e)(1) of this section and subject to terms and conditions
acceptable to the Board.

(f) Consultation with Other Agencies. In taking any
action under this section, the Board will consult with the relevant
Federal and state regulatory authorities and the appropriate home
country supervisor(s) of the foreign bank.

§ 225.94 What are the consequences of an insured branch or
depository institution failing to maintain a satisfactory or better
rating under the Community Reinvestment Act?

(a) Insured branch as an "insured depository
institution." A U.S. branch of a foreign bank that is insured
by the Federal Deposit Insurance Corporation shall be treated as an
"insured depository institution" for purposes of § 225.84.

(b) Applicability. The provisions of § 225.84, with
the modifications contained in this section, shall apply to a foreign
bank that operates an insured branch referred to in paragraph (a) of
this section or an insured depository institution in the United States,
and any company that owns or controls such a foreign bank, that has
made an effective election under § 225.92 in the same manner and to
the same extent as they apply to a financial holding company.